In today's Wall Street Journal, Mr. Stewart writes that "We can't turn the clock back to March 16, when the original deal was announced. Any subsequent improvement in Bear's asset value should accrue to the people who made it possible, namely the taxpayers, and to a lesser extent JP Morgan, which took the risk of stepping into the breach -- not those who drove the firm to the brink." Exactly!
As Mr. Stewart said, without the Fed's guarantee of $30 billion of Bear Stearn's assets, and JP Morgan's (NYSE: JPM) willingness to acquire the company, Bear Stearns would be in bankruptcy. So why are Bear Stearns shareholders being rewarded? This is the equivalent of helping a guy who was falling off a cliff regain his footing, and then paying him $1 billion for the privilege.
It's a huge disappointment that the Federal Reserve is playing along with this charade. The fed should tell JP Morgan and Bear Stearns that if JP Morgan can afford to pay Bear Stearns shareholders $1 billion, that they should go ahead and do the deal without its backing.
No bailout should include a 10-digit payoff for the one being bailed out.
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Reader Comments (Page 1 of 1)
3-26-2008 @ 2:13PM
Sheldon L said...
Chapter 11 or chapter 7? Makes a difference. Shareholders might make more out of 11 then the ultimate deal, while 7 wipes them out entirely. Also, do you perceive any risk at all to the rest of the world finacial market place if Bear collapses? The Fed obviously was worried about it.
3-26-2008 @ 5:01PM
NewsVisual said...
Now that JPMorgan Chase & Co has apparently clinched the buyout deal of The Bear Stearns Companies Inc by raising its bid price, the next hurdle that JPMorgan’s Board of Directors will be confronted with are shareholder lawsuits. These lawsuits are almost inevitable. "Sure enough, on Tuesday, the Wayne County Employees’ Retirement System of Michigan and the Police and Fire Retirement System of the City of Detroit sued Bear, its directors and JPMorgan Chase," The New York Times reported in an online article on Wednesday. The Bank’s Directors will have to advise the Senior Executives on whether to settle the suits or to allow them to be resolved in court. To reach sound judgments on these issues, the Directors will need to draw off of their knowledge business and their experience of similar shareholders lawsuits.